Question & Answer: The following cost data relate to the manufacturing activities of Chang Company during the just completed year: Manufacturing ov…..

The following cost data relate to the manufacturing activities of Chang Company during the just completed year: Manufacturing overhead costs incurred: Indirect materials Indirect labor Property taxes, factory Utilities, factory Depreciation, factory Insurance, factory $ 15,900 139,000 8,900 79,000 150,300 10,900 Total actual manufacturing overhead costs incurred S 404,000 Other costs incurred Purchases of raw materials (both direct and indirect) Direct labor cost S 409,000 $ 69,000 Inventories Raw materials, beginning Raw materials, ending Work in process, beginning Work in process, ending S 20,900 S 30,900 $ 40,900 $ 70,900 The company uses a predetermined overhead rate to apply overhead cost to jobs. The rate for the year was $20 per machine-hour. A total of 20,600 machine-hours was recorded for the year. Required 1. Compute the amount of underapplied or overapplied overhead cost for the year overhead costQuestion & Answer: The following cost data relate to the manufacturing activities of Chang Company during the just completed year: Manufacturing ov..... 1

The following cost data relate to the manufacturing activities of Chang Company during the just completed year: Manufacturing overhead costs incurred: Indirect materials Indirect labor Property taxes, factory Utilities, factory Depreciation, factory Insurance, factory $ 15,900 139,000 8,900 79,000 150,300 10,900 Total actual manufacturing overhead costs incurred S 404,000 Other costs incurred Purchases of raw materials (both direct and indirect) Direct labor cost S 409,000 $ 69,000 Inventories Raw materials, beginning Raw materials, ending Work in process, beginning Work in process, ending S 20,900 S 30,900 $ 40,900 $ 70,900 The company uses a predetermined overhead rate to apply overhead cost to jobs. The rate for the year was $20 per machine-hour. A total of 20,600 machine-hours was recorded for the year. Required 1. Compute the amount of underapplied or overapplied overhead cost for the year overhead cost

Expert Answer

 

(1) Predetermined Overhead Cost = [ Rate per machine hour * Total machine hours ]

= [ 20 * 20,600 ] = 412,000 = $ 412,000

Actual Overhead Cost = $ 404,000

As predetermined Overhead Cost is more than Actual Overhead Cost therefore Overhead Cost is Overapplied.

Overhead Cost is Overapplied by an amount = [ 412,000 – 404,000 ] = 8,000 = $ 8,000

(2) Schedule of Cost of goods manufactured for the year is as follows :

Chang Company Schedule of Cost of goods Manufactured for the year

Part 1

Particulars Amount ( In $ )

Raw Material ( Beginning ) 20,900

Add : Raw Material Purchased 409,000

Less : Raw Material ( Ending ) ( 30,900 )

Raw Material transferred to Work in Process 399,000

Part 2

Particulars Amount ( In $ )

Work in Process ( Beginning ) 40,900

Add : Raw Material transferred to Work in Process 399,000

Add : Direct Labour Cost 69,000

Add : Indirect Material 15,900

Add : Indirect Labour 139,000

Add : Property taxes for factory 8,900

Add : Utilities for factory 79,000

Add : Depreciation for factory 150,300

Add : Insurance for factory 10,900

Less : Work in Process ( Ending ) ( 70,900 )

Cost of Goods Manufactured for the year 842,000

Cost of Goods Manufactured for the year = $ 842,000

Point of Explanation

The Schedule of Cost of Goods Manufactured for the year is prepared in two parts. Part 1 when Raw Material transferred to Work in Process is calculated and Part 2 when Raw Material transferred to Work in Process is used in calculating Cost of Goods Manufactured for the year.

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